International Congress on Eurasian Economies

International Conference on Eurasian Economies

10-12 July 2017 – Istanbul, TURKEY

Paper detail

Paper ID : 1829
Status : Paper published
Language : English
Topic : Finance and Financial Crises
Presenter: Dr. Ferry Syarifuddin
Session : 2A Finance

Monetary Policy Response on Exchange Rate Dynamics: The Case of Indonesia
Monetary Policy Response on Exchange Rate Dynamics: The Case of Indonesia

Abstract

Bank Indonesia has been implementing Enhanced Inflation Targeting Framework (EITF) since few years ago. The main monetary instrument is short term policy interest rate. The policy interest rate, in this regard, may also have significant role in driving the exchange rate to its desired level. Setting appropriate the interest rate to drive the exchange rate is important to drive the actual inflation to its official target. In order to see the response of policy interest rate to exchange rate dynamics as well as the impact of exchange-rate dynamics to macroeconomic indicators, Structural Co-integrating Vector Auto Regression (SC-VAR) in an open economy model, is implemented. Its finding shows that exchange rate dynamic of USD/IDR has significantly positive relationship with domestic interest rate. The increase of the USD/IDR (depreciation) will then push domestic interest rate to increase.

JEL codes: B26, E52, F31

Syarifuddin, Ferry (2017). "Monetary Policy Response on Exchange Rate Dynamics: The Case of Indonesia" in Proceedings of International Conference of Eurasian Economies 2017, pp.54-64, Istanbul, TURKEY.

DOI: https://doi.org/10.36880/C08.01829

Full paper in PDF format.

Session 2A: Finance

Eurasian Economists Association Istanbul Beykent University Kyrgyz-Turkish Manas University TIKA Turkish Central Bank Kavram Vocational High School